As the price of gold fell to $1,640 in February, Hammers decided it was time to go short the precious metal. Two months later, his bet looks prescient.

Gold futures plummeted 9.4 percent Monday, to a two-year low of $1,360.60 an ounce. On Tuesday, gold was last trading at $1,377.48, up about 0.7 percent.

Hammer expects gold to jump back above $2,000 an ounce next year amid political and economic strife. He is already planning to start buying gold again by the end of the year.

It's a back-and-forth dance move that other investors are practicing as well.

Factors from the rising U.S. stock market to Cyprus's announcement that it planned to sell most of its gold reserves, have pushed gold into a bear market, or down more than 20 percent from its 2011 high.

Minutes from the latest meeting of the Federal Reserve also hinted that the central bank may strengthen its monetary policy this year by ending quantitative easing, potentially strengthening the dollar against gold.

"Technically, the long-term bullish trend in gold is still intact but the short-term trend is clearly bearish," said Gareth Feighery, a founder of options education firm www.MarketTamer.com in Philadelphia.

Many investors remain convinced that the factors that pushed gold to its heights will reemerge as the United States continues to grapple with its debt problems and central banks eventually begin tightening interest rates. PIMCO's Bill Gross, manager of the world's largest bond fund, wrote on Twitter on Monday that "I would still buy gold here. World reflating."

No one knows where or when the price of gold will stabilize. But here are ways that investors can take bullish and bearish positions in the metal now.

GOING LONG

Gold remains the best hedge in case of a financial crisis or currency deflation, experts say.

"This sell-off has presented a great opportunity to buy the insurance that gold provides much more cheaply than they would have been able to even a few days ago," said Michael Cuggino, a portfolio manager of the $15 billion Permanent Portfolio. The mutual fund has approximately 22 percent of its assets in gold, which is unchanged over the past year.

Cuggino's fund holds a diverse line up of assets including Swiss francs and U.S. equities such as Exxon Mobil Corp and oil refiner HollyFrontier Corp.

Investors who want to take a more direct stake in gold can buy exchange-traded funds (ETFs) like the SPDR Gold Trust or the iShares Gold Trust, both of which track gold futures and are closely correlated to the price of gold. Consequently, SPDR Gold Trust is down 25 percent from its 52-week high and iShares Gold Trust is down 23 percent.

Options also allow investors to bet on the price of gold, but they are more complex.

Selling puts is one way to generate income while holding a long-term gold position, said Jared Woodard, principal at Condor Options, a research and trading advisory firm in Forest, Virginia.

An equity put option gives the right to sell the security at a fixed price by a certain date. When an investor sells a put, they receive the premium from the buyer.

Here's how the strategy works with gold ETFs: the June $125 SPDR Gold Trust strike put could be sold for a premium of $2.04 based on a fund price of $134.29 per share, Woodard said. The investor would keep that premium if SPDR Gold Trust shares remain above $125 at June expiration.

GOING SHORT

There are also more exotic instruments, such as the VelocityShares 3x Inverse Gold ETN and the ProShares UltraShort Gold fund, that give investors either triple or double the daily negative return of gold futures.

Both funds are positive for the year, with the Proshares fund returning 8.6 percent since the start of January and the VelocityShares fund gaining 13.5 percent, according to Morningstar data. Yet these returns are not as much as the approximately 18 percent year-to-date fall in gold prices.

That is because of the structure of these ETFs. Those who do decide to invest in these funds should only hold them for a single day at a time because the leverage component is only active on a daily basis, said Jeff Tjornehoj, head of Lippers Americas Research. Over time, that means a positively leveraged fund could have a negative return, even if gold prices are rising, Tjornehoj said.

Most should pause before investing in the more leveraged portfolios.

"You can get hurt very quickly in these funds," said Todd Rosenbluth, director of mutual fund research at S&P Capital IQ. "In the case you were in a 2-times gold fund, you could have lost 40 percent of your assets if gold is down 20 percent, and that's very hard to recover from."

HEDGING

Some options strategies also let investors benefit if gold prices stay within a defined range. A calendar spread, for instance, involves buying long-term call options while also selling shorter-term calls. A call option allows an investor to buy a security at a fixed price.

An example of a calendar spread would include purchasing a Jan 2014 $135 strike call on the SPDR Gold Trust for $8.70 against the sale of the April $135 strike call for $1.87, for a total net cost of $6.83.

This strategy would deliver a gain in a sideways to upward trending market as long as SPDR Gold Trust shares stayed below $135 by April expiration. Investors stand to lose as much as $6.83, which is the net premium paid, but that only happens if you hold the January call option until it expires, according to Feighery of MarketTamer.